The principle that a nearby development can affect the value of a property even if the owner does not participate is called?

• A. Supply and demand
• B. Conformity
• C. Substitution
• D. Externalities

Answer: (D)

Externalities describe effects on property value from factors outside the property itself, such as nearby development. These influences can change desirability and market price even when the owner has no control or participation, so the appraiser must account for them when evaluating value. The nearby development might raise or lower demand, influencing what buyers are willing to pay based on the surrounding environment.

This term is the best fit because it specifically identifies value changes caused by external conditions, not by market-wide supply and demand dynamics, the property’s conformity to the neighborhood, or the substitution principle used for comparing with similar properties.